Corporate Update Bulletin - 9 January 2025

Welcome to the latest edition of Corporate Update, our fortnightly bulletin offering a five-minute read of the latest developments which we consider relevant to corporate counsel. Please get in touch with your usual contact if you want to explore any of the topics covered in more detail. If you would like to subscribe to this bulletin as a regular email, please click here.

In this issue:

• News
• Legislation
• Case Law
• Publications

News

ISS 2025 Proxy Voting Guidelines published

On 27 December 2024, and following its November consultation, Institutional Shareholder Services (ISS) published its 2025 Benchmark Policy updates for its proxy voting guidelines, which will be effective for shareholder meetings held on or after 1 February 2025. Key changes in relation to its guidelines for the UK include:

• Executive remuneration and dilution: changes, including changes to the malus and clawback provisions, have been made to reflect the updated Investment Association’s (IA) Principles of Remuneration and the UK Corporate Governance Code 2024. The guidelines also reflect the removal of the five percent of issued share capital over a 10-year rolling period share dilution limit applicable to executive (discretionary) share schemes in the updated Principles of Remuneration (which now maintain only the 10 percent in 10-year dilution limit applicable to all employee share schemes). The guidelines recognise that a five percent dilution limit is still considered best practice by many investors and therefore still provide that companies should explain the rationale for schemes that exceed this limit.
• Remuneration for smaller quoted companies: changes have been made to reflect the updated QCA Corporate Governance Code 2023, which recommends that smaller quoted companies put their remuneration reports to advisory shareholder votes.
• Board diversity: it has been clarified that listed companies are only required to report against specific gender and ethnic diversity targets on a ‘comply or explain’ basis under the Listing Rules as opposed to necessarily meeting them.
• Remuneration at financial institutions: the section has been deleted following the removal of the variable-to-fixed remuneration cap for dual-regulated firms on 31 October 2023.

PERG publishes its annual report and refreshes the Walker Guidelines

The Private Equity Reporting Group (PERG) has published its 17th annual report together with a report on the Performance of Portfolio Companies, and a guide to Good Practice Reporting. The reports, designed to be read in tandem, assess the private equity industry’s adherence to the Guidelines for Disclosure and Transparency (the Walker Guidelines). Key findings from PERG’s reports include the following:

• 90 portfolio companies, a record number, were in scope of the Walker Guidelines in 2024, of which 81 were deemed compliant;
• only 43% of portfolio companies prepared disclosures to at least a good standard, which was a significant drop from 60% in 2023;
• there was a deterioration in the standard of compliance with financial key performance indicators although basic compliance with disclosures that are specific to the Walker Guidelines, particularly social, community and human rights issues and gender diversity information was maintained; and
• 10% of portfolio companies (all of which were backed by non-BVCA private equity owners) did not comply with any of the three components of the Walker Guidelines that apply to them which include enhanced disclosures, publication of reports and provision of date, less than the 14% reported in 2023.

Alongside the reports, and following a joint British Private Equity and Venture Capital Association (BVCA) and PERG consultation earlier this year, PERG has also published an updated version of the Walker Guidelines. Following feedback from the consultation, PERG has changed the thresholds and tests to determine whether a portfolio company is captured by the Walker Guidelines so that they are more comparable to FTSE 250 companies in size. The revised Guidelines also include a commitment by PERG to do further work on a mechanism to allow companies that grow significantly to be brought into scope, and companies that reduce in size to fall out of scope.

The consultation also considered greater disclosures around board composition, ownership structures and management activity, alongside risk management and ESG matters. The revised Guidelines includes enhanced and increased disclosure on principal risks, environmental matters, and diversity, equality and inclusion, although disclosures on ownership structures and board composition have not changed. The amended Guidelines will apply to portfolio companies within scope for financial years that begin after 30 April 2025.

Government publishes its response to the House of Lords Modern Slavery Committee Report

On 16 December 2024, the government published its response to the House of Lords Select Committee’s (the Committee) report on the impact and effectiveness of the Modern Slavery Act 2015. Section 54 of the Act imposes a duty on larger commercial organisations which carry out business in the UK to produce a statement detailing actions taken to ensure that their business and supply chains are free of modern slavery and human trafficking. The Committee’s report focuses on key areas, including section 54 reporting and supply chain due diligence requirements, the impact of immigration legislation, the issues with modern slavery in the care sector, enforcement of the Act and the Independent Anti-Slavery Commissioner. The Committee had recommended various measures, including measures to address the comparability of section 54 statements and to increase awareness amongst companies of modern slavery issues in supply chains, the publication of standardised guidance, as well as the introduction of proportionate sanctions for organisations that do not comply with the supply chain transparency requirements.

However, the government’s response did not outline any significant legislative changes to section 54 reporting and supply chain due diligence requirements, although it does note that the government is currently updating its section 54 statutory guidance. The response also does not set out a specific timetable for next steps, simply noting that these will be revealed “in due course”.

IFRS Sustainability Disclosure Standards published

On 18 December 2024, the UK Sustainability Disclosure Technical Advisory Committee (TAC) announced the publication of its technical assessment and endorsement recommendations regarding the two inaugural IFRS Sustainability Disclosure Standards, IFRS S1 (General Requirements for Disclosure of Sustainability-related Financial Information) and IFRS S2 (Climate-related Disclosures).

Overall, TAC’s technical assessment concludes that both standards meet the endorsement criteria, although it has made some proposed amendments, particularly in relation to reporting on financed greenhouse gas emissions and transition reliefs. The TAC has deferred the decision to the policy and implementation committee but has recommended amended wording for the voluntary application of the IFRS standards.

FCA consults on regulatory framework for new PISCES platform 

The Financial Conduct Authority (FCA) has published a consultation paper (CP24/29) which seeks feedback on the proposed regulatory framework for the Private Intermittent Securities and Capital Exchange System (PISCES) – a new trading platform to facilitate intermittent trading of private company shares using market infrastructure (FCA press release). It is intended that the platform will also use public market features such as multilateral trading, as well as private market features, providing companies with greater discretion over how and to whom disclosures are distributed, when trading occurs, and which investors can participate.

The consultation follows the publication of the draft Financial Services and Markets Act 2023 (Private Intermittent Securities and Capital Exchange System Sandbox) Regulations 2025 (the draft PISCES Regulations). The proposed regulatory framework will be established under a Financial Market Infrastructure (FMI) sandbox created by HM Treasury. The operation of the PISCES sandbox is expected to run for five years. The framework itself is temporary and further legislation will be required for a permanent regime. Responses to the consultation are sought by 17 February 2024 and the FCA expects to publish its final rules shortly thereafter.

FCA publishes Primary Market Bulletin 53

On 13 December 2024, the FCA published Primary Market Bulletin 53 (PMB 53), its newsletter for primary market participants, in which it finalised amendments to certain Technical Notes and proposed amendments to other Technical Notes on which it is consulting. In summary, the FCA is:

• reconsulting on two Technical Notes which the FCA originally consulted on in PMB 48;
• finalising three Technical Notes on the Sponsor Regime that the FCA consulted on in PMB 50;
• consulting on proposed amendments to 43 Technical and Procedural Notes; and
• consulting on deleting one Technical Note and one Procedural Note.

Notably, the FCA is re-consulting on changes to TN710.2 (relating to sponsor services) to clarify when a firm will be treated as providing a “sponsor service” and amendments to TN209.43 (relating to dealing with the FCA in an open and co-operative matter under Listing Principle 2), which provides an indication of the factors that should be considered by issuers and their advisors when deciding whether to contact the FCA. The FCA also provided feedback on its consultation in PMB 50 and subsequent changes to the Knowledge Base on the UK Listing Rules to remove references to the pre-July 2024 Listing Rules, and highlighted its recent consultation to update Handbook references to the UK Corporate Governance Code 2024.

Legislation

Companies and Limited Liability Partnerships (Protection and Disclosure of Information and Consequential Amendments) Regulations 2024 come into force

On 19 December 2024, the Companies and Limited Liability Partnerships (Protection and Disclosure of Information and Consequential Amendments) Regulations 2024 (the Regulations) were made and are due to come into force on 27 January 2025. An explanatory memorandum has also been published alongside the Regulations.

The Regulations extend the ability for individuals to protect their usual residential addresses (URA) from public view at Companies House if they have previously been used by a company as its registered office. Instead, only the “outward code” of a postcode (i.e. the first three or four characters) would be shown, or where an address does not include an outward code, the geographical area equivalent would be shown.  If a particular company has been dissolved, an individual must wait six months from dissolution before applying for their URA to be protected from view. These changes would also apply to limited liability partnerships.

Information Sharing (Disclosure by the Registrar) Regulations 2024 published

The Information Sharing (Disclosure by the Registrar) Regulations 2024 (the Regulations) have been published together with an explanatory memorandum and came into force on 20 December 2024. Under section 94(4) of the Economic Crime and Corporate Transparency Act 2023, the Registrar has enhanced information-sharing powers, including the ability to disclose information to any person and for a purpose specified in regulations made by the Secretary of State. These Regulations allow the Registrar to disclose information to insolvency practitioners or other insolvency officeholders in specified circumstances.

Case Law

LA Micro Group Inc v LA Micro Group (UK) Ltd [2024] UKSC 42

Supreme Court finds that an unwritten agreement to transfer beneficial interest in shares to holders of the legal title to those shares is valid

In this case, the Supreme Court considered whether a beneficiary may dispose of their beneficial interest in personal property (i.e. shares) to the respective legal holders by way of an oral agreement, or whether section 53(1)(c) of the Law of Property Act 1925 (LPA) prevented disposal without a signed written agreement.

The Supreme Court held that a vendor-purchaser constructive trust arose between the beneficiary and the trustee on the transfer of shares, which effects the disposal of the beneficial interest. Pursuant to section 53(2) of the LPA, the disposal is then considered to be by way of constructive trust falling outside the scope of section 53(1)(c), therefore the oral agreement was valid. The Supreme Court also clarified the scope of section 53(1)(c) confirming that it also applies to personal property, as well as equitable interests in land.

Flohr v Frontiers Capital I Ltd Partnership [2024] EWCA Civ 1385

Court of Appeal concludes that a general partner of a dissolved limited partnership can commence proceedings on behalf of the partnership

In this case, the Court of Appeal decided that a general partner of a limited partnership had the authority to commence proceedings against a third party on behalf of the partnership, meeting the requirements of section 38 of the Partnership Act 1890, after the partnership had been dissolved.  The Court of Appeal dismissed the appeal against the High Court's finding that a cause of action against a third party which accrued to the partnership before dissolution, which was not pursued or realised or dealt with, and which was not time-barred, remained a partnership asset. In the circumstances, the winding up was incomplete even though the person who carried out the winding up mistakenly believed it had been completed. As such, section 38 continued in operation for the purposes of realising the asset and completing the winding up.

The Court also dealt with the question of whether it was “necessary” within the meaning of section 38 to commence litigation proceedings in this case in order to wind up the affairs of the partnership. The Court of Appeal agreed with the High Court that what is “necessary” to complete the winding up is to be interpreted as what is "reasonably required" in the circumstances.